2017 Mid Year Correction

Each year I establish a basic plan to govern my investing activity based on sectors, segments or locales able to deliver a little alpha to my portfolio.  The past couple of years had a focus on the Financial industry with the outcome being rewarded with mergers (small banks) and outsized dividend increases (money center banks).  I also began increasing my Canadian allocation in 2015 from 2.5% of my dividends to the current 8.6%.  Since the election, I was accelerating the increase in my other foreign holdings to the current 13.6% on two theories, 1) gridlock in Congress would persist as the Republican majority would be too narrow to push through sweeping changes, and 2) this inaction would result in a weaker dollar.  It appears I was correct on both counts as the US dollar is now at an eight month low.

With my alpha agendas now too pricey (at least for slam dunk results), a re-prioritization is in order. With the Fed Chairs’ testimony this week indicating that GDP growth of 3% would be difficult, the Trump agenda which projects a higher growth rate is likely in peril – even ignoring the self-inflicted wounds.  Without an improvement in the GDP, deficit hawks will be circling.  It is likely the last half of the year will present some opportunities, but my view these will be predicated on external events.  My eyes will remain open to the USD exchange rate – on strength I may buy foreign issues.

My portfolio allocation between holdings labeled Anchor, Core and Satellite have been imbalanced for a year or two primarily due to merger activity and the acceleration of adding foreign issues.  Now that the major mergers have completed, the last this past January, and other alternatives are slim, I figure it’s time to get back to basics.

My going forward strategy can be summarized as follows:

  1. Non-US equities when secured at a favorable exchange rate
    a)I have 2 Japanese, 2 Swiss, 1 UK and 1 Swedish company on my watch list in the event an attractive price presents itself
  2. Assess corporate actions (spins, splits, mergers) for opportunities
    a) Generally I’m agnostic to splits except when the result would be a weird fractional.  I can easily manage tenths or hundredths of shares.  Smaller sizes are troublesome so I avoid when possible.
    b) Spins (and mergers) are assessed to prevent (if possible) weird fractionals.  For instance, I added to my MET position earlier this month as their spin will be at a ratio of 11:1 which would have otherwise delivered a weird fractional.
  3. Assess portfolio for average down and other opportunities
    a) An example of this was last months’ purchase of KSU.  To this end, I recently updated my Dividends (Div Dates) Google sheet to flag when the current price is lower than my cost basis.
    b) An example of “Other Opportunities” would be BCBP which is resident in my Penalty Box due to dilution.  The dilution (secondary) might be explained (now) with their announced acquisition of the troubled IA Bancorp.  If the regulators provide their seal of approval, it may be time to remove BCBP from Penalty status and perhaps add to this 3.5% yielder.
  4. Add to holdings that are below target weighting
    a) This is where I expect most of my second half activity to reside.

Of my 26 stocks labeled Anchor, Core or Satellite; 5 can be considered at their target weight (within .5% of the target) and 4 I consider to be overweight.  The remaining 17 will receive most of my attention.  As most of these rarely go on sale, I’ll likely ignore price and place a higher priority on yield and events – at least until I’ve exceeded last years’ total dividends.

The following table highlights this portion of my portfolio:

JAN/APR/JUL/OCT

COMPANY TYPE PORT DIV%
Kimberley-Clark/KMB A-(6%) 4.01%
First of Long Island/FLIC C-(3%) 0.85%
Sysco/SYY C-(3%) 1.81%
Bank of the Ozarks/OZRK C-(3%) 0.67%
PepsiCo/PEP S-(1.5%) 1.51%
First Midwest/FMBI S-(1.5%) 0.3%
Comcast/CMCSA S-(1.5%) 8.32%
Toronto-Dominion/TD S-(1.5%) 1.58%
NOTE: Not all payment schedules coincide completely

FEB/MAY/AUG/NOV

COMPANY TYPE PORT DIV%
Clorox/CLX A-(6%) 3.68%
PNC Financial Services/PNC C-(3%) 0.30%
Legacy Texas Financial/LTXB C-(3%) 1.48%
Starbucks/SBUX C-(3%) 1.07%
Blackstone/BX S-(1.5%) 2.58%
Apple/AAPL S-(1.5%) 1.26%
Lakeland Bancorp/LBAI S-(1.5%) 1.04%
Webster Financial/WBS S-(1.5%) 0.82%
NOTE: Not all payment schedules coincide completely

MAR/JUN/SEP/DEC

COMPANY TYPE PORT DIV%
WEC Energy/WEC A-(6%) 5.61%
3M/MMM C-(3%) 0.76%
Home Depot/HD C-(3%) 7.32%
Blackrock/BLK C-(3%) .22%
ADP/ADP C-(3%) 1.60%
Southside Bancshares/SBSI S-(1.5%) 0.96%
Chevron/CVX S-(1.5%) 9.52%
Norfolk Southern/NSC S-(1.5%) 1.99%
Flushing Financial Corp/FFIC S-(1.5%) 0.99%
Wesbanco/WSBC S-(1.5%) 1.14%
NOTE: Not all payment schedules coincide completely

I will provide the caveat that this plan is subject to not only the whims of  the market but of my own as well.  In addition, this plan may be changed if/when a better idea comes along.

March 2017 Update

March brought us the longest DOW losing streak in five and a half years on the heels of the first legislative defeat of the Trump administration.  The talking heads then moved their focus to the “end of the earnings recession”.  Frankly, I think as long as the US dollar remains strong, earnings will continue to suffer – except for domestically focused companies.  As a leading indicator to this thesis, I would point to the slowing growth in dividend increases as a proxy.  Regardless, the S&P closed the month down .04% while my portfolio rebounded ending the month up 3.3%.  At the end of the first quarter, I lead the S&P by 1.35%.

Headlines impacting my portfolio:

  • 3/1 – SQ buys OrderAhead (pvt)
  • 3/6 – FMBI acquires Premier Asset Mgmt, LLC
  • 3/9 – BR acquires Message Automation, Ltd.
  • 3/13 – BUSE acquiring MDLM
  • 3/16 – MMM acquiring Scott Safety from JCI
  • 3/16 – Fed lowers barriers for <$100B bank mergers
  • 3/20 – UL reviewing sale of spreads line
  • 3/23 – BLK buys 5% stake in NTDOY
  • 3/27 – BLL sells paint can line to BWAY Holding
  • 3/27 – DST buys remaining UK JVs from STT
  • 3/27 – SGBK to merge with HOMB
  • 3/28 – KO and KOF close on AdeS line purchase from UL
  • 3/29 – MA acquires NuData Security
  • 3/30 – CM increases offer for PVTB

Portfolio Updates:

  • Added to BCE
  • Added to SQ
  • Added to KO
  • Added to TD
  • Initiated position in AKO.B

Dividends:

  • March delivered an increase of 9.15% over March 2016.  2.24% of this increase is attributable to purchases with the remaining 97.76% a result of dividend increases.  The Y/Y comparison is a little distorted as four companies shifted pay dates and one special dividend did not reoccur.
  • March had an increase of 6.44% over the prior quarter.  This was primarily due to a pay date shift as a result of a merger.
  • Declared dividend increases averaged 7.75% with 36.42% of my portfolio delivering at least one raise (1 cut – YUM).
  • YTD Dividends received were 27.1% of total 2016 dividends.  If the current run rate is maintained would exceed 2016 around October 15th – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L and SGBK.HOMB remain pending

Jan 2017 Update

January saw DOW 20,000 being attained before dropping under once again.  The post inauguration euphoria  beat a hasty retreat in the wake of record protests, a wave of executive orders and a record number of lawsuits filed against a president in his first eleven days.  In finance terms, this uncertainty translated into concerns about the the ability or  time required to effect change through the legislative process – in particular tax reform.  This month The S&P gained 1.79%.  while my portfolio recorded a gain of 3.51% largely due to the final significant merger completing.  After a great 2016, I’m making some changes in my 2017 strategy that will (hopefully) accelerate performance in 2018.  Meanwhile I’ll be content with a slight win versus the S&P this year.

Headlines impacting my portfolio:

  • 1/5 – WMT ends V ban in Canada
  • 1/9 – SBUX discontinues Evenings concept
  • 1/10 – NWBI divests MD assets to SHBI
  • 1/13 – LSBG/BHB merger completes
  • 1/17 – ADP acquires Marcus Buckingham Co.
  • 1/20 – IRM acquires Kane Office Archives LLC through BK court
  • 1/23 – AMC acquires Nordic Cinema
  • 1/24 – Executive order moving Keystone (TRP) forward signed
  • 1/25 – DOW 20,000
  • 1/25 – BLK moves 1T$ from STT to JPM
  • 1/26 – JNJ to acquire ALIOY then spin R&D unit to ALIOY shareowners
  • 1/30 – GDOT buys UniRush (RushCard)
  • 1/31 – BX prices INVH IPO

Blog Updates:

posts under consideration for Feb are Methods to my Madness Pt 3 update, Anti-Trump strategy, My Coca-Cola strategy and The Commonality Between Trump and Me

Portfolio Updates:

  • Added to CLX
  • New position – CCLAY
  • New position – BHB (LSBG merger)
  • New position – SWRAY

Dividends:

  • January delivered an increase of 15.46% over January 2016.  This requires normalization due to PEP and WRE paying in January rather than December, KO paying in December rather than January and BUSE paying in February.  On a normalized basis, this represents a Y/Y increase of 3.1% which is attributable to dividend increases (Y/Y).  This means my October purchases from merger proceeds were successful in maintaining my Jan,Apr,Jul,Oct income stream.
  • January had a 3.0% increase over the prior quarter.
  • Declared dividend increases averaged 7.44% with 19.65% of my portfolio delivering at least one raise (1 cut – YUM).
  • Dividends received were 9.2% of total 2016 dividends and if the current run rate is maintained would exceed this total around October 15th.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L remain pending

The One Metric

Investment Hunting just started a Blogger Interview series with an interesting interview with Roadmap2Retire a few days ago (June 21). One question in particular caught my attention, If you could only use one metric to evaluate a stock, which one would you choose? Sabeel’s answer was spot on in my book (I don’t think there is one metric that can be used to evaluate stock. If everything could be boiled down to one single number, investing would be easy. The reality is that investing in a company is a multifaceted aspect and there a hundreds of things to consider – both from a qualitative and quantitative standpoint.), but led me to ponder the proverbial what if: If there were only one which would it be?

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The -opoly World

Early Retiree Reality (ERR) recently published a thought provoking article titled My Duopoly and Oligopoly Shopping List on Seeking Alpha.  The premise is essentially that duopolies and oligopolies provide wider moats which results in greater profitability.  I would encourage you to read it.  This idea is similar to one I’ve been working on with my Speculative Pillars series on Cord cutting, Transaction Processing and to a lesser degree Regional Banks.  Although neatly packaged, I failed to make the leap into the –opoly world.

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Recent Buy -PNC

pnc

I just couldn’t let March go by without making a purchase.  With the market generally up for the month, financials were the laggards.  So on March 24th I added to my existing PNC position at $84.08.  By averaging down, I effectively reduced my cost basis by about $.50.

Although I consider PNC a core position I haven’t been aggressive in getting it to my 3% target weight, primarily due to the 2.4% yield.  I’m still lacking in this regard but am considering this purchase a down payment.

  • Benefits: Poised to benefit with a continuation of interest rate increases
  • Negatives – economic slowdown will disproportionately impact

I believe any downsides are mitigated through their 20% ownership of Blackrock.

 

 

 

Portfolio Structure

Whimsical Dividends recently wrote a piece on monthly dividends – posing some good and thoughtful questions.  So rather than answer in a lengthy response, I figured this would be a good starting point for my weekly (or thereabouts) post.

When I first started investing one of my goals was to build a monthly paying portfolio.  This goal was achieved many years ago.  But when I retired, I guess I had too much time on my hands so I wondered if it was possible to build a weekly paying portfolio.  To this end I have pretty much succeeded.

My research began with Dave Fish’s CCC list.  A wonderful repository of data.  I also used articles by Dividend House as a resource.  Although she’s a recent convert to DGI, and I’m not at all in full agreement with some selections, her style and illustrations make her a must read.

My end result is I have placed 26 companies (of about 105 in my portfolio) into three categories, segmented by quarter, with two payees per week.  The result is (almost) weekly payments.

(updated 26 Oct due to PNY merger)

1 A Kimberly-Clark KMB 1 C PNC Financial PNC 1 A WEC Energy WEC
2 C Piedmont Nat. PNY 2 A Clorox CLX 2 C 3M MMM
3 C Sysco SYY 3 C Legacy Texas LTXB 3 C Home Depot HD
4 C Bnk of The Ozarks OZRK 4 C Starbucks SBUX 4 C Blackrock BLK
1 S PepsiCo PEP 1 S Blackstone BX 5 C ADP ADP
2 C First Long Island FLIC 2 S Apple AAPL 1 S Southside Banc. SBSI
3 S Comcast CMCSA 3 S Lakeland Bancorp LBAI 2 S Chevron CVX
4 S Lake Sunapee Bnk LSBG 4 S Webster Financial WBS 3 S Norfolk Southern NSC
 2  S  First Midwest  FMBI 4 S Flushing Financial FFIC
5 S Wesbanco WSBC